Information Asymmetry, Mispricing, and Security Issuance

Jiyoon Lee

Research output: Contribution to journalArticlepeer-review

11 Citations (Scopus)

Abstract

I examine the effects of information asymmetry–driven mispricing on security issuance. Using predisclosure changes in purchase obligations as a proxy for information asymmetry–driven mispricing, I find that managers avoid (prefer) issuing securities when they perceive their firms to be undervalued (overvalued). The effects of information asymmetry–driven mispricing are stronger on equity issuance than debt issuance. Consequently, undervaluation (overvaluation) causes an increase (decrease) in leverage. These effects are more pronounced for firms, periods, and securities associated with greater information asymmetry. The stock-trading patterns that managers follow suggest that their perceived mispricing is an important factor in both private and firm-level decisions.

Original languageEnglish
Pages (from-to)3401-3446
Number of pages46
JournalJournal of Finance
Volume76
Issue number6
DOIs
Publication statusPublished - 2021 Dec

Bibliographical note

Publisher Copyright:
© 2021 the American Finance Association

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics

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